New Uber Bull Sees the Sell-Off as a Buying Opportunity

Yesterday, Argus Research upgraded Uber stock from “hold” to “buy” on the improvement in its competitive landscape. In this article, we’ll discuss Uber (UBER) and Lyft’s recent analyst rating changes and their rationale. Before that, let’s look at the broader context in which these companies are operating.

Lyft and Uber’s stock prices

Uber stock has lost 42% of its value since it made its public debut in May this year at $45 per share. Uber’s ride-hailing peer, Lyft (LYFT), has also seen a fall of nearly 42% from its IPO price of $72.

The primary concern surrounding these ride-sharing companies is their path to sustainable profitability. To garner market share, they offered initial discounts to customers and incentives to drivers, which pressured their bottom lines. However, both companies have started following the rational approach of prioritizing value over volume. Uber and Lyft are also cutting costs aggressively to rein in their cost structures.

Lyft’s third-quarter earnings

These companies recently released their third-quarter results. Lyft’s third-quarter results beat analysts’ top and bottom-line estimates. Its revenues came in at $955.6 million, rising 63.4% year-over-year (or YoY). Its revenues were also higher than consensus expectations of $915 million. Lyft reported narrower-than-expected net losses of $463.5 million.

Uber’s third-quarter earnings

Uber’s third-quarter earnings also beat market expectations. Its revenues rose by 30% YoY to $3.8 billion, higher than analysts’ expectations of $3.7 billion. The company posted losses of $1.16 billion, which were lower than the consensus estimate loss of $1.45 billion.

However, Uber stock still got hammered after its earnings. There were several reasons for this pressure. Despite the beat, analysts were concerned about the company’s bookings growth and food-delivery business. This caused many analysts to reduce their price targets for the stock. Plus, selling pressure on the stock ahead of the lockup expiration took its toll.

Regulatory issues facing ride-hailing firms

In addition to profitability concerns, ride-hailing firms are also battling several regulatory and safety issues. California passed Assembly Bill 5, which can transform the business models of these firms. Uber and Lyft also did not attend a Congressional hearing, which was scheduled to examine their safety and labor practices.

Analysts are positive on Uber and Lyft

Despite these concerns, analysts are largely positive on Lyft and Uber. Currently, 37 analysts cover Uber, out of which 65% have “buy” ratings on the stock while 32% have “hold” ratings. The average target price of $45 implies an upside of 73% for the stock.

Similarly, 63% have “buy” ratings for Lyft out of 38 analysts covering it. A total of 32% recommend a “hold” for the stock. The consensus target price of $67 implies a potential upside of 60% for Lyft’s stock. We discussed analyst ratings for these stocks in more detail in Why Uber and Lyft Have Analysts Feeling Positive.

Argus Research upgraded Uber stock

Yesterday, Argus Research upgraded Uber stock from “hold” to “buy” with a target price of $35. According to TheFly, Argus analyst Jim Kelleher believes that the competitive environment in the company’s core ride and Uber Eats business is improving.

Kelleher also mentioned that Uber has a 33% market share in the ride-hailing business and that it has “network efficiencies.” The analyst also believes that Uber’s sell-off is a buying opportunity, as he believes that its “fundamentals have remained intact.”

Barclays: How could Uber stock double?

Today, Barclays outlined the way Uber’s stock could double. As reported by CNBC, Barclays thinks that Uber could be just “one major announcement away” from a positive narrative.

During its Q3 earnings call, Uber CEO Dara Khosrawshahi mentioned that the company is aiming to become EBITDA-positive by 2021.

Lyft named as J.P. Morgan’s top pick

Today, J.P. Morgan (JPM) named Lyft as its top pick. CNBC reported JPM as saying that it likes Lyft’s improved revenue and earnings, as well as increased market share in the ride-hailing business. Previously, Lyft’s co-founders said that the company could become profitable by 2021. This is one year earlier than when analysts expect the company to become profitable.

Due to ride-hailing companies’ increasing focus toward profitability and a shift from growth at all costs, analysts have been turning around for these stocks. A further positive narrative from the companies regarding their path to profitability could boost their stock prices as well.